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June 28, 2018

Main organizational benefits of combining IFRS 16 compliancy with an IWMS

It is now well-known that the introduction of IFRS 16 will have major reporting consequences for companies with off-balance contracts, such as property lease contracts. The implementation often takes about six to nine months because the new IFRS standard requires input from many departments, including property, finance, IT and purchasing. However, according to JLL research, 52% of property managers indicate that up to one third of their data is inaccurate regarding the actual number of buildings, square meters, use and costs.

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This has a huge impact on the timely and accurate implementation of IFRS 16. In fact, without the correct data on property and lease contracts, a compliant and cost-efficient implementation of this new standard by January 2019 is simply impossible. The answer lies in combining Integrated Workplace Management System (IWMS) software and IFRS 16 compliancy within one solution. Why? In this blog I will explain the main organizational benefits, while next week’s blog will discuss the advantages for the property management department specifically. 

Clear overview of all contractual obligations

The main reason organizations have interest in combining an IWMS solution with IFRS 16 is centralization. Organizations want a clear overview of all worldwide contractual obligations in one system so that they can report according to the IFRS 16 requirements. After all, how can leases of property and business assets be added to the balance sheet as debt if it is not clear which contracts have been concluded in which countries? But not only which contracts, for example also with which parties, the contract duration and the level of the rents are important. Without the complete data of all leases worldwide, it is almost impossible to comply with IFRS 16 in a timely and cost-efficient manner.

Accurate and up-to-date information

For organizations that already lease their property, the implementation of an IWMS system in combination with IFRS 16 is extra valuable. More property leases result in more lease accounting impacts, which greatly increases the necessity of accurate accounting. Additionally, more leases lead to a dynamic property portfolio that you must fully justify through disclosures on financial statements. This is only possible with accurate and up-to-date information about your entire portfolio and current leasing contracts, such as contract duration and annual rent. This includes a periodic assessment of whether the use of options for extension or early termination is ”reasonably certain”. Even without an actual change to the lease, ”reasonable certainty” affects the figures to be reported, and applies to both the leasing of property as well as business assets, such as cars, production equipment and office facilities.

One single source of truth

An integrated software solution combines property management processes such as portfolio management, lease management, strategic space planning and transaction management with a proven lease accounting solution for property and asset lease contracts. By combining these processes into one software solution, organizations benefit from a single source of truth and a 360-degree view of their entire portfolio. This allows property and finance managers to make the right decisions regarding their portfolio and lease strategies while also delivering accurate lease accounting data from the same process.

Implementing the new standard is an intensive job, but by combining the new standard with an IWMS, you get clear insight into a wide range of data about the entire lease portfolio; a precondition for timely and efficient compliance with the new requirements. Next week, I will tell about the benefits from a property management perspective. Do you want to know more about IFRS 16 compliancy, different methods of implementation and the benefits of combining it with an IWMS? Please download our recently published white paper.

David Stillebroer
Director Product Management